Apple’s Hail Mary to Keep H.264 Video Relevant

Quick quiz: what encoding standard do your online videos have? Don’t know? Well, until recently, that could have cost you – to the tune of 6 figures or more.

Few marketers have time to worry about the backend technologies that drive video on your site. But, these protocols could have had large impacts on your bottom line. Imagine getting an invoice for tens of thousands of dollars from MPEG-LA or Google, owner of On2.

Just a few months ago, that was a very real possibility. But, with recent developments from both Google and the MPEG-LA consortium, there is much less chance of this future. What happened? And why? In order to understand why, we must first review what’s needed to get online video to work in the first place.

A (Very Brief) Overview of Web Video

Video assets are recorded in a number of formats. But, in order to be played within a browser, they must conform to the browser’s standards. Historically, this has been very complex because there are no standards for video playback within the browser itself. So, we had to rely on third party plugins (Flash is the most ubiquitous) in order to deliver video content.

HTML5 changes that by giving all browsers a universal way to access video content: the <video> tag. No more annoying popups from Adobe saying that the user’s version of Flash is out of date. HTML5 gives us a standards-based way to render online video – the promise is universal playback support.

The latest versions of all major PC and Mac browsers, as well as iOs and Android browsers, all support HTML5. However, different browsers still use different codecs to encode the video differently (a codec is a piece of software that acts as a coder-decoder). There are literally hundreds of video codecs. Anyone can write a new codec. And codecs can be written for different reasons – some might provide absolutely crystal clear picture, others focus on compressing video to the smallest possible size, and others might focus on ease of use for programmers.

Modern browsers have aligned with two codecs in particular: H.264, and Theora. H.264 is a video codec that includes patents controlled by many different entities. These patent owners (including Apple), work with a consortium known as MPEG-LA, which acts as a kind of clearinghouse for defining the overall rules around patent licensing issues. By pooling all the patents together and administering licenses through a central body (MPEG-LA), the patent holders are hoping to make H.264 an easier standard to adopt in the marketplace. Theora, on the other hand, is an open-source project, with no patents or restrictions on its use for creating or decoding video. The Theora standard is getting old, though – it is based on VP3 technology from 2004.

Apple vs. Google: Clash of the Video Titans

As consumer demands for quality video increase, Theora is showing its age. Recentstudies are mixed on whether Theora or H.264 is better, but in general, H.264 is accepted as having higher quality resolution and smaller file sizes. Not surprisingly, Steve Jobs frequently uses the quality argument when underscoring why iOs devices (including, most importantly for video, the iPad) do not support Flash. Jobs conveniently neglects to mention that Apple has an ownership stake in H.264, and would love nothing more than to have control over the video format of the web.

That’s why Google got in the streaming video game with their acquisition of On2, which created a competing technology – VP8. Remember that Theora was based on VP3? On2 created that too. The On2 team continued improving their codec to the point at which VP8 is clearly equal, and in some ways technically superior, to H.264.

Google’s acquisition had nothing to do with On2’s business, and everything to do with acquiring the VP8 technology and the team that built it (an ancillary benefit: they can use the more efficient protocol on their own site, YouTube, which will save them tens of millions in server and bandwidth fees). To further underscore the point, Google has discontinued On2’s services.

MPEG-LA (again, of which Apple is a member) responded to that acquisition in February 2010 by opening up licenses (PDF) to play H.264 content for free through 2015, if content providers give video to users for free. In May, Google raised the stakes by completelyreleasing the patents on VP8 into the wild in a new container called WebM – that means it’s free to create videos in VP8, free to distribute them, and free to sell them.

The latest move from MPEG-LA removes the previous cut-off of 2015. Moving forward, anyone can use the H.264 codec for free to give their video away. Of course, if you want to get something encoded to H.264, you still need to have a license to encode it in the first place. And, if you are selling videos (not giving them away for free), license fees will also apply.

A Whiff of Desperation from Apple

Really, this new decision does not materially affect the payment structures that MPEG-LA has in place at all. In that context, this seems like a losing battle for Apple. Given the wide, sweeping opening of VP8, Apple’s tepid response shows where their interest lies: Apple makes money off of content. Google, in contrast, makes money off of advertisers, which means more free content benefits them directly.

Apple and Google are going head to head in exactly the same way in mobile operating systems, each driven by a distinct revenue stream. Apple’s iOS allows Apple to get revenue from app downloads. Google’s Android does not take a cut of revenue, but drives more people to Google’s search-based advertisers.

But, where are the priorities of both these companies? Apple has an increasingly difficult job of defending both mobile and video. And the rewards are not equivalent. The online video market is expected to be $15B in 2012. By contrast, mobile is bigger – way bigger. The mobile data market alone is expected to be $16.4B in 2012, and that does not account for the handset market, the voice data market, the mobile advertising market, the mobile apps market, or the mobile search market. Mobile is at least 5 times larger than online video – so Apple needs to defend iOs much more than it needs to defend H.264.

What It Means for Marketers

There is a lot of uncertainty right now around what video technologies will be supported in the near future. We can safely say that Safari will continue to use H.264, and Chrome will continue to use WebM. Firefox has implemented Theora, and Internet Explorer 9 uses H.264 currently, but will also support WebM.

Of course, none of this addresses your website visitors running IE7, Firefox 2.x, or other older browsers (likely more than 50% of your traffic). They will still need Flash support.

The bottom line is that this rapidly changing landscape is too much for an internal marketing team to manage. License arrangements, supported browsers, and future-proofing the roadmap for your site technology has almost nothing to do with moving your prospects through the funnel, and driving conversions.

That’s why choosing an online video technology partner that manages these concerns for you is crucial. Ask your partner how they are ensuring compliance with all major browsers, including with H.264, Theora, WebM, and Flash. For the time being, let the titans battle it out, and let your video technology partner keep score.